Europe’s Rising Debt Burden Still Pales Next to US

Europe's debt in late 2011 stood well above the EU's limits for a healthy economy, with even powerhouse Germany bearing a debt load that could take decades to pay down, although borrowing as a proportion of output was smaller than for the United States.

The 27-nation European Union's total government debt rose slightly to 82.2 percent of economic output in the third quarter of 2011, statistics agency Eurostat said on Monday, while debt in the 17-nation euro zone declined to 87.4 percent of output.

Europe's debts soared from levels nearer EU limits of 60 percent of gross domestic product following the introduction of the euro in 1999, as some countries indulged in massive borrowing at very low rates of interest.

Borrowing costs for sovereigns such as Italy and Spain were pushed to unaffordable levels late last year as the scale of their vulnerability became apparent to investors.

But with economic growth stalling as spending across the bloc is cut to bring down fiscal deficits, EU states face very slow progress in lowering their debt burdens.

"It's nice for EU policymakers to say that things aren't as bad as the United States, but Washington still has market confidence and that cannot be said for all of Europe," said Carsten Brzeski, a senior economist at ING.

U.S. debt-to-GDP hit 100 percent in 2011 and under its current trajectory would exceed 115 percent of GDP by 2016, according to International Monetary Fund figures. Japan's debt burden also exceeds the EU's, with the IMF forecasting Tokyo's gross debt to reach 250 percent of GDP in 2015.

But Europe is not a single entity and even the euro zone's monetary union is seen by many as an incomplete project, lacking the fiscal cohesion economists say it needs.

Debt levels vary hugely across the continent, from 6 percent of GDP in Estonia to 159 percent in Greece.

Payback Time

Of the euro zone's 8.2 trillion euro total government debt, some 70 percent is owed by Germany, France and Italy. While Berlin can still bank on strong investor backing, France lost its top-notch rating last month when Standard & Poor's downgraded its sovereign debt from triple-A.

Concerns about Italy's ability to manage its huge public debt, equal to about 120 percent of GDP, pushed spreads between Italy's 10-year bonds and comparable German Bunds to record levels in November and forced Silvio Berlusconi out of power.

Rome remains in the front line of the euro zone debt crisis with his successor as Prime Minister, Mario Monti, struggling to convince markets he can reform the sick Italian economy.

Greece had been living beyond its means for years and has been shut out of financial markets since it revealed the extent of its wayward accounts. Failure to secure a second rescue package worth 130 billion euros ($170 billion) could push it into a chaotic default as soon as next month.

Only 13 EU members had debts below the 60 percent limit set by the European Commission in the third quarter. Just four of those were members of the 17-nation single currency area.

France and Britain each had debt equivalent to 85.2 percent of output, and even Germany, the bloc's biggest economy and the main proponent of austerity for indebted EU states, had a debt level of 81.8 percent in the July-to-September period.

Monday's data was the first of its kind released by Eurostat and reflects efforts to step up monitoring within the bloc, where the sovereign debt crisis is now in its third year.

The World Bank said last month that Europe's debts may not reach manageable levels until 2030. That could potentially erode Europe's leadership in the world, while less-indebted emerging countries expand their economies and their influence.

"We still need to reach the bottom of the debt crisis and stop the problems from escalating," said Andre Sapir, an economist at Brussels-based think thank Bruegel.